Supes could launch Salinas hospital merger talks

They will talk today about a joint negotiating team

Feb. 11, 2014

Natividad Medical Center / The Salinas Californian

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The issue of forging a partnership between two Salinas hospitals is back on the front burner today as Monterey County supervisors consider launching formal negotiations to integrate Natividad Medical Center with Salinas Valley Memorial Hospital.

If the board moves ahead today with negotiations, a joint negotiating team would be formed with representatives from both hospitals and county officials, including the County Counsel’s office. Any new entity that would emerge from negotiations would be a public hospital authority. SVMH has suggested a joint powers authority with the moniker of Monterey County Healthcare System.

The concept of merging some or all services of the two hospitals was first proposed officially in spring 2012 when the county responded to a request from SVMH to consider an affiliation. Neither hospital was on top of their financial games at that time, and both were looking down the barrel of health-care reform dramatically shaking up the fiscal landscape for health-care providers.

Though the board of directors at SVMH subsequently shot that idea down, the financial realities exerting pressure on both facilities through the Affordable Care Act have only built momentum.

And then the situation got thornier.

A little over a year ago, both hospitals filed intents to operate trauma centers, but only one could be granted a license. Trauma centers, which care for the region’s most critically injured patients, are two things: certainly a badly needed resource in the county, and they can be money-makers. Hospitals across the country are adding trauma centers at a record pace, spurred in part by the lure of greater profits. More than 200 trauma centers have opened since 2009 in more than 20 states, and 75 other hospitals are seeking approvals, according to data collected by Kaiser Health News from state health agencies.

The trauma center designation became sought after by both hospitals. But in September last year the Board of Supervisors named NMC as the most qualified facility, based on a “scorecard” submitted to the board by trauma experts from outside of Monterey County.

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The staff report attached to the supervisors’ agenda item today makes no mention of the trauma center, but the letter the board will likely discuss certainly does. Signed by Harry Wardwell, president of the SVMH Board of Directors, the letter – dated less than a week before the supervisors’ January decision – includes a polite but adamant suggestion that the financial aspects of NMC’s Trauma Implementation Plan be revisited with updated and perhaps more accurate data.

For example, the SVMH letter notes that countywide trauma cases have declined by 28 percent since 2009, the base year used by the county in determining the financial impacts of a trauma center at NMC. Nearly one-third fewer trauma patients would be a “material factor” in determining whether revenue would be sufficient to support a trauma center at NMC.

Additionally, SVMH points out that the so-called “payor” mix – categories broken down by who pays medical bills – “has significantly deteriorated” since 2009. It notes that revenue from commercial business has declined by 39 percent between 2009 and 2012. That timeframe also corresponds to the nationwide recession that began in 2008. The SVMH analysis concludes that NMC would suffer a $4.8 million loss when these new data are factored in.

“This will unfortunately further negatively impact the financial viability of providing trauma [care], regardless of who provides trauma services in Monterey County,” the letter reads.

Harry Weis, chief executive officer of NMC, acknowledged during the last supervisors’ meeting that in the current fiscal year ending June 30 the hospital is roughly $4 million in arrears and would likely close out the fiscal year closer to $8 million in the red.

But Weis argues that the current fiscal year is an anomaly because of the heavy investment in technology, equipment and other overhead NMC has had to make to ready itself for opening a trauma center.

By comparison, the most recent financials for SVMH show that while December patient revenue is essentially flat over the same month a year ago, expenses are down and its profit rose from $1.2 million in December 2012 to $2.7 million during the most recent December.

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But the trauma center aside, experts say there is sound logic behind combining at least some operations of the two hospitals. Pete Delgado, CEO of SVMH, in an earlier interview with The Salinas Californian, said costs savings would be realized through “economies of scale,” meaning bigger organizations buy more products and consequently can get them cheaper.

Both hospitals and Lew Bauman, chief administrative officer for the county, have said financial pressures brought about by health-care reform are adding more layers to their money challenges. With reform came lower reimbursement rates from Medicare and Medi-Cal, while pushing for more preventative care and more clinic services over hospitalizations.

Fewer hospitalizations translate into pressure on revenue, which makes the prospect of some kind of affiliation more palpable.

“The ACA has served as a catalyst to accelerate the consolidation movement, which seems to have taken on a life of its own,” wrote Dr. Mitch Morris, vice chairman and national health-care provider lead for Deloite LLP, a global accounting and consulting firm, in a paper published last month. “The stand-alone hospital may be an endangered species — many smaller organizations simply cannot afford to invest in keeping up with facilities, upgrading IT capabilities, attracting the best clinicians, or playing an active role in the emerging payment model innovation game.”

Dennis L. Taylor is a senior writer for The Salinas Californian. Follow him on Twitter @taylor_salnews.